Lawsuit

[MGC94]

Wrongful termination 

The lawyer got $20,000

Taxpayer got $10,287.28 

There is no tax form, but the lawyer is saying to report it as income. Where would this go? Is it reportable? 

[sjrcpa]

yes, $30K is reportable. Other income, but it probably should have been on a W-2.

[MGC94]

I'm sorry. The net settlement was $20,000 the lawyer got $7,086.98 and the net proceed distributable to taxpayer was $10, 287.28. The rest was other fees. 

If he doesn't have a w2 I just report $20,000 on Schedule 1 line Z? 

[Norman2001 · Accepted solution]

From Pub 4345:

"If you receive a settlement in an employment-related lawsuit; for example, for unlawful discrimination
or involuntary termination, the portion of the proceeds that is for lost wages (i.e., severance pay, back
pay, front pay) is taxable wages and subject to the social security wage base and social security
and Medicare tax rates in effect in the year paid. These proceeds are subject to employment tax
withholding by the payer and should be reported by you as wages on Line 1a of Form 1040, U.S.
Individual Income Tax Return."

[MGC94]

I do not have a W2 for line 1a. 

How do I put it in there? 

Do I just override and mail in the return?

Can it go on 1h other income? 

[MGC94]

@Norman2001 @sjrcpa 

I do not have a W2 for line 1a. 

How do I put it in there? 

Do I just override and mail in the return?

Can it go on 1h other income? 

[Norman2001]

Do you have a W-2 from the employer from a previous year? If not, your client should be able to provide one. Use the information to create a W-2 with the amount of the settlement. The settlement amount ends up on Line 1a., as it should. 

I doubt that SS taxes were withheld, but you could ask your client.  

[MGC94]

@Norman2001 The previous employer didn't pay him. It was the lawyer who cut him a check 

[sjrcpa]

And where did the lawyer get the money to pay him?